Castle Constructions Pty Limited v Fekala Pty Limited

• 9 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3812/01 CASTLE CONSTRUCTIONS PTY LIMITED V FEKALA PTY LIMITED JUDGMENT Outline 1 The plaintiff, Castle Constructions Pty Limited (Castle Constructions) as purchaser and the defendants as vendors, entered into a contract on 28 June 2001 for the purchase and sale of property 7 Rowe Street, Eastwood. The vendors were selling as mortgagees of the property exercising their power of sale under mortgage. It seems that during the term of the mortgage the St David's Private Hospital was being conducted on the land. There were previously some matters which related to that, but no question arises bearing on it now. Castle Constructions claims to have terminated the contract because the vendors did not complete in accordance with the requirements of a notice to complete served by the vendors. The plaintiff seeks a declaration as to its proper termination and an order for the return of the deposit and damages. The defendant by way of cross-claim seeks specific performance of the agreement. Facts 2 There were 37 mortgagees under the mortgage holding as tenants in common in unequal shares. One of the mortgagees was Valerie Winifred Colburt. She had died on 20 April 2001. She was named as a vendor under the contract dated 28 June 2001, which of course was not possible. Probate of her will was granted to Jennifer Gai Davies and Ian Leslie Colburt on 22 June 2001. The interest of Mrs Colburt under the mortgage was transmitted to the executor by registration of a transmission application at some date after the contract was signed. What appears to be an office note placed on the document in the Land Titles Office would indicate that registration was effected after 31 July 2001, but it is not known on what date registration was effected. The evidence is that the solicitor for the purchaser did not become aware of either the death or the transmission until 24 August 2001. It seems he was not informed of either matter by the solicitor for the vendors. 3 The contract was executed by Mr Lahoud, the sole director of Castle Constructions on behalf of the plaintiff company. It was signed by Mr Carter, the solicitor for the vendors purporting to act as agent for the vendors. While there were some questions raised about lack of authority and ratification these can be put on one side. Castle Constructions, by way of amended summons, raised the question of s54A of the Conveyancing Act 1919. Had this matter been pleaded then that would have been raised as a defence to the defendants' cross-claim for specific performance. It could not have been successful because the claim for specific performance was brought against the purchaser company which it was accepted had signed the contract. In the long run counsel agreed that s54A had no relevance to this action. 4 The contract provided for completion on the forty-second day after 28 June 2001. It is accepted that this was 9 August 2001. Clause 4 of the printed conditions and Clause 32 of the additional conditions are relevant and are set out hereunder:

4. Transfer 4.1 Normally , the purchaser must serve the form of transfer at least 14 days before the completion date. 4.2 If any information needed for the form of transfer is not disclosed in this contract, the vendor must serve it.

4.3 If the purchaser serves a form of transfer and the transferee is not the purchaser, the purchaser must give the vendor a direction signed by the purchaser personally for this form of transfer.

Clause 32 32. Despite any rule of law or equity to the contrary; the vendor and the purchaser agree that any notice to complete given by the vendor to the purchaser under this contract shall be reasonable as to time if a period of 14 days from the date of service of the notice is allowed for completion. 5 For completeness I record that Clause 34 of the additional clauses provides that if either vendor or purchaser dies prior to completion, then the other may rescind by written notice. The relevance of this to Mrs Colburt was not discussed and the clause was not relied upon by the plaintiff in these proceedings. 6 On 19 July 2001 Mr Carter, who was the solicitor acting for the vendors, wrote to Mr Germanos, the solicitor for Castle Constructions. That letter included the following: We look forward to your requisitions on title together with the memorandum of transfer in due course, bearing in mind that we have to obtain the signatures of numerous mortgagees, some of whom is (sic) interstate and some of whom live in the country. 7 On 7 August 2001 Mr Carter wrote again to Mr Germanos noting that the transfer document had not been provided and then saying As we mentioned in our letter of 19 July, the transfer document will have to be executed by numerous mortgagees and accordingly require the transfer document as a matter of urgency. 8 On 14 August 2001, Mr Carter served a notice to complete, fixing 3.00 pm on 29 August as the time and date for completion making time of the essence as to both time and date. 9 The solicitor for Castle Constructions responded to this denying the ability to give the notice but this was not pursued other than to make a claim for compensation from the vendor for fixtures removed. On 27 August Mr Germanos forwarded to Mr Carter a draft settlement statement and a form of transfer for execution. Later that day he sent an amended transfer or more precisely amended annexures which contained the names of the vendor mortgagees and execution clauses for each of them. He did this stating that he had become aware that one mortgagee holding his interest jointly with his wife had died and notice of death registered and that the interest of Mrs Colburt now stood in the name of her executors. In fact the notice of death had been registered prior to the contracts being entered into at the auction sale, although the deceased joint holder was shown as one of the mortgagees but not as a vendor. This was a mistake of Mr Germanos, but the information as to the estate of Mrs Colburt was not due to any mistake of his. 10 Mr Carter, for the vendors acknowledged the letter by fax transmission on 27 August and gave directions as to payment of the balance of the settlement moneys apparently being satisfied with the purchaser's figures. There was some further correspondence on 28 August about those figures and a claim for compensation and it is apparent that Mr Germanos accepted the claim by Mr Carter for interest. 11 By a separate letter dated 28 August Mr Carter wrote to the purchasers care of their solicitors referring to the notice to complete and then saying We hereby advise that we waive the requirement for your client to complete at 3.00 pm on Wednesday 29 August 2001 at the offices of Nugent Wallman & Carter, solicitors at 388 Edgecliff Road, Woollahra. The vendors now require you to complete the contract for sale of land at 7 Rowe Street Eastwood NSW being Folio Identifier 10/785746 at 3.00 pm on Wednesday 12 September 2001 at the offices of Nugent Wallman & Carter at 388 Edgecliff Road, Woollahra. We note that time will not cease to be of the essence. In the event that you fail to complete at that time, the vendors will regard themselves as entitled to terminate the said contract for sale. 12 Mr Germanos attended for settlement at 11.55 am on 29 August at the offices of the vendors' solicitors. He had with him the necessary cheques and he had instructions to settle. Mr Carter said that the vendors were not ready: they had not signed the transfer and he had extended the settlement date. Mr Germanos said that this could not be done unilaterally and Mr Germanos disagreed. The bank cheques were produced for inspection by Mr Carter and after that Mr Germanos left the office. He returned again at 2.55 pm and once again Mr Carter said that the vendor was not able to settle and would not be able to settle that day. On return to his office after 3.00 pm Mr Germanos sent a letter giving notice of termination. 13 It took Mr Carter until to 11 September to have the transfer signed by all the necessary vendors. On that basis it seems that the vendors would have been able to settle on 12 September 2001 if the notice purporting to extend or vary the completion date was effective. Matters for decision 14 The question is whether or not the purchaser was entitled to terminate because of the failure by the vendors to settle at 3.00 pm on 29 August 2001. It is accepted that the time was of the essence as well as the date. The arguments of the parties centred about whether the purchaser was precluded from terminating the contract because it had failed to submit a transfer to the vendor in accordance with Clause 4.1 of the contract; whether failure of the vendors to comply with Clause 4.2 of the contract bore upon this question; whether by serving the notice without reference to default in service of the transfer the vendors had waived this breach on the part of the purchaser, if there were a breach; and finally whether a vendor giving a notice to complete can unilaterally waive the requirement for completion on that date. It is convenient to deal with this last matter first. Can the party giving the notice unilaterally extend the time for compliance? 15 The cases establish that once given, a notice is binding on both the party giving it and the party receiving it assuming that it was a valid notice when given. No particular argument was directed as to any question of invalidity of the notice and although the solicitor for the purchaser did challenge its validity at one stage, it is clear that he did not pursue this and accepted that, subject to the claim for compensation which was not put forward as a reason for delaying settlement, the notice was valid and I so find. As to a notice being binding on both parties see Halfpenny v Wilson (1967) 87 WN Pt 1 (NSW) 547 at 551 and Quadrangle Limited v Jenner [1974] 1 All ER 729 at 732. What is determined by these cases and others is that a party giving a notice making time of the essence who is himself unable to complete by the required date is himself in essential default giving the other party the right to terminate. If that is the position then as a matter of ordinary contract law, if the time for completion becomes an essential term of the contract between the parties then as such a term it cannot be varied by one of them. The right to give the notice was a right given to either side and not just for the benefit of one. As to the notice being binding on both parties see also Falconer v Wilson [1973] 2 NSWLR 131 at 137 and Mearns v Parras Holdings Pty Limited [1994] NSW Conv. R 55-705 at 60031. That latter case also discusses the position which can arise where the party receiving a notice to complete challenges its validity. Apart from the attempt by the solicitor for the vendors to amend the terms of the notice as to completion unilaterally, there is nothing to suggest that the vendors ever relied upon the statements made by the solicitor for the defendant in questioning the validity of the notice or relied upon any conduct of the purchasers which would indicate that they did not intend to settle in accordance with the notice. In fact it is perfectly clear from the correspondence about settlement figures that the vendors knew that the purchaser were working towards settlement on 29 August as required by the notice to complete. There was no argument putting forward a contrary position. I find the attempt at waiver ineffective. Failure of the purchaser to submit transfer 16 The argument of counsel for the vendors was that a party cannot take advantage of its own default. Clause 4.1 of the contract requires the purchaser to submit a transfer within fourteen days before the expected date for completion. It is clear that the purchaser was in breach of this term. It is also clear that the vendors were in breach of Clause 4.2 in that the transfer to be effective could not be prepared in terms of the contract. I should add that because one of the parties having the right to sell under the mortgage had died before the sale was effected and therefore the interest of that party was not subject to the contract, there was a special need for the solicitor for the vendors to make known these problems to the solicitor for the purchaser and to satisfy his requirements about that before there was any sense in sending a transfer. In those circumstances it does not seem to me that the vendors can rely upon any failure of the purchaser to comply with Clause 4.1 without their having put the purchaser in a position to comply by themselves complying with Clause 4.2. In any event did service of the notice to complete waive the requirement of the purchaser to submit the transfer? 17 While it was not strictly necessary for his decision Mahoney J held in Falconer v Wilson at p 145 that where there were two actions required in that case by a vendor, namely the replies to requisitions and completion, then notice requiring completion implied waiver of the requirement for answers to requisitions. Relating that to the present case, notice to complete, without also requiring submission of transfer, would amount to waiver of the right to insist upon service of transfer. The facts of the present case give no reason to depart from the reasoning of Mahoney J with which I agree. In view of the difficulties which were going to confront the vendors' solicitor with signatures of thirty-seven vendors to obtain, it seems to me that the only course available to the vendors' solicitor if he wished to serve a valid notice to complete in the form which he did was for himself to prepare the transfer and have it executed by the vendors ready for settlement on the due date. The evidence of Mr Carter established that, acting as quickly as he was able, it took 14 days to get the transfer executed. Even then the vendors did not execute the original document. Many of them signed the execution page having been sent a photostat copy of the operative sheet. I find there was waiver. A vendor wishing to rely on a failure to serve a transfer should give notice requiring that to be done making time of the essence; I accept however that the requirement to serve the transfer within a reasonable time and to complete at a later reasonable time can be incorporated in one notice making time of the essence for each. Result 18 The result of my conclusions is that the purchaser validly terminated the contract and is entitled to the declaration sought. It was agreed at the commencement that any question of damages would be referred to a Master for inquiry if there was evidence going to show that the purchaser had sustained damage by reason of the vendors' breach in failing to complete and that such damage was sufficient to justify an inquiry. There was such evidence and I will therefore make the appropriate order for this. As a result of my conclusion the purchaser is entitled to an order for return of the deposit. The cross-claim should be dismissed. The defendant must pay the plaintiffs' costs of the claim and cross-claim. The plaintiff should bring in short minutes of order.

Last Modified: 02/28/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.